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The dollar index, which tracks the greenback against six major rivals, slid 0.64 per cent to 95.113 after earlier falling to 95.100, its lowest since September 2016. — Reuters pic

NEW YORK, July 15 — The dollar weakened and government bond yields fell to multi-week lows on Friday after a benign reading of US inflation in June and soft retail demand raised doubts the Federal Reserve would increase interest rates later this year.

The Dow and S&P 500 both closed at new records while gauges of global stock markets also scaled fresh highs, capping their best week in more than two months. Oil prices rose 1 per cent.

The US consumer price index increased 1.6 per cent, the smallest gain since October 2016, after rising 1.9 per cent in May, the Labour Department said. Year-on-year CPI has been softening steadily since February, when it hit 2.7 per cent.

The CPI’s drop of 0.1 per cent in May and the lack of a rebound last month could trouble Fed officials who have largely viewed a recent moderation in price pressures as temporary.

“The CPI data begs the question, at what point does transitory becomes something that is more sustained, in terms of the softness,” said Richard Franulovich, senior currency strategist at Westpac Banking Corp in New York.

US interest rates futures rose as traders pared their view the Fed would increase rates again in 2017.

The dollar index, which tracks the greenback against six major rivals, slid 0.64 per cent to 95.113 after earlier falling to 95.100, its lowest since September 2016. The drop came after the US data raised doubts about US economic growth and whether the Fed will hike rates again this year.

“This cements the weaker trend in the dollar and lower US yields and I think this story has got legs,” Franulovich said.

The annualized rate of inflation in several CPI components over the past three months showed declines of 4.9 per cent in apparel, 5.5 per cent in used cars and trucks and 4.1 per cent in professional services, said Heidi Learner, chief economist in New York for brokerage Savills Studley, a unit of Savills Plc .

The data indicates “a little bit of concern about how the Fed is going to normalize policy,” Learner said.

YIELDS DROP

US Treasury yields dropped to multi-week lows as the benign inflation data and unexpected fall in retail sales fuelled doubts about an interest rate increase later this year.

The benchmark 10-year US Treasury note rose 6/32 in price to yield 2.3248 per cent. The German 10-year yield fell as much as 4 basis points to 0.49 per cent, before paring declines to about 0.53 per cent at the end of day.

The euro gained 0.64 per cent to US$1.468 (RM6.28). The Japanese yen strengthened 0.65 per cent versus the greenback at 112.53 per dollar, while the Mexican peso gained 0.48 per cent and the Canadian dollar rose 0.58 per cent versus the greenback.

Stock markets, meanwhile, marched higher. MSCI’s gauge of equity performance in 47 countries gained 0.65 per cent, and its world index rose 0.64 per cent. The pan-European FTSEurofirst 300 index of leading shares rebounded to rise 0.10 per cent and close at 1520.41.

The Dow Jones Industrial Average rose 84.65 points, or 0.39 per cent, to 21,637.74. The S&P 500 gained 11.44 points, or 0.47 per cent, to 2,459.27 and the Nasdaq Composite added 38.03 points, or 0.61 per cent, to 6,312.47.

Ten of the 11 major S&P sectors rose, with information technology up 0.89 per cent to lead the advancers.

For the week, the S&P rose 1.4 per cent, the Dow 1.05 per cent and the Nasdaq 2.6 per cent, it’s biggest weekly gain in 2017.

Shares of JPMorgan, Citigroup and Wells Fargo , which have run up in recent weeks, were among the top five biggest drags on the S&P 500 as their earnings reports failed to excite investors.

A supply interruption in Nigeria boosted crude oil and prices posted a weekly gain of more than 4 per cent on lower US stockpiles.

Brent crude futures, the international benchmark for oil, settled up 49 cents at US$48.91 per barrel.